Dec. 17 (Bloomberg) -- China said it will seek a higher
“quality and efficiency” of growth next year, signaling new
leaders may accept a reduced pace of expansion in exchange for a
more sustainable model.

There was no mention of seeking “relatively fast” growth,
a policy in place since 2006, in a report yesterday by the
state-run Xinhua News Agency after the annual central economic
work conference in Beijing. Leaders vowed to target “sustained
and healthy development” as they maintain a “prudent”
monetary policy and “proactive” fiscal stance, Xinhua said.

Chinese leaders assuming power in a once-a-decade handover
to be completed in March must decide the pace of market-driven
change to boost consumer demand and rein in the role of exports
and investment. Communist Party chief Xi Jinping, who made the
case for restructuring during a visit to the southern Guangdong
province this month, faces an economy likely to have grown this
year at the weakest rate since 1999.

“Now the focus is firmly on reform for next year and the
future,” said Shen Jianguang, Hong Kong-based chief Asia
economist at Mizuho Securities Asia Ltd. “The key to watch is
how fast the new leadership will proceed with the real tough
structural change and reform. Many of these are easier said than
done.”

Even so, “next year is considered a vital year for the new
leadership,” so the government will not allow a so-called hard
landing in growth, Shen said.

Improve Quality

The need to improve the quality of expansion was also cited
by the party’s ruling Politburo in a Dec. 4 statement reported
by Xinhua.

The government usually reveals specific economic targets at
the legislature’s annual meeting in March. Nine of 16 economists
surveyed by Bloomberg News last month forecast China will keep
its 7.5 percent goal for growth in gross domestic product next
year. The figure was the lowest target since 2004 when it was
announced in March 2012.

The median estimate in a Bloomberg News survey is for 7.7
percent expansion this year.

Rate Controls

People’s Bank of China Governor Zhou Xiaochuan spoke today
of limits on reform, saying China will keep controls on short-term capital flows even if it implements deeper convertibility
of the yuan. China won’t welcome capital flows such as those by
some hedge funds that enter or exit the country in one or two
weeks, Zhou said at a conference in Sanya, China.

Wu Xiaoling, a former PBOC deputy governor who’s now deputy
director of the financial and economic committee of parliament,
said at the same event that circumstances will be right in 2013
to further loosen controls on interest rates. China should
consider adding several basis points to the Shanghai interbank
offered rate, or Shibor, to replace the current central bank
benchmark interest rate, Wu said.

The country will “properly expand” aggregate financing to
maintain a “moderate increase” in lending next year and
reiterated it will keep the yuan’s exchange rate “basically
stable,” Xinhua said yesterday.

The ruling Politburo said this month that China will keep
economic policies stable, making adjustments as needed to deal
with difficulties. At the same time, the economy will “face
various challenges that should not be underestimated” next year,
Xinhua reported Dec. 4.

Deng Tribute

China shouldn’t delay economic restructuring, Xi said
during an inspection tour of Guangdong, where he paid tribute to
Deng Xiaoping, a former leader who drove opening of the economy.

“We should master greater political courage and wisdom to
push forward the next reforms,” Xinhua said yesterday in its
report. It cited a phrase used by Deng about “crossing the
river by feeling for the stones.”

The benchmark Shanghai Composite Index rose 0.5 percent
today, extending the biggest rally in three years as the
government’s plans to increase urbanization spurred gains in
commodity producers.

“The meeting sent a stronger signal of speeding up
reforms,” said Sun Junwei, a Beijing-based economist at HSBC
Holdings Plc. At the same time, slack in the job market and
producer-price deflation indicate that officials need to stay
focused on growth goals, Sun said.

Policy Labels

The government’s labels for its policies are sometimes
altered after the fact. For example, China started raising
interest rates in 2010 before dropping its “moderately loose”
stance of monetary policy in place since 2008.

The language of a prudent monetary policy has framed
interest-rate moves in both directions. China raised borrowing
costs and the reserve-requirement ratio for lenders from October
2010 to July 2011 as inflation picked up. Since then, with
economic growth slowing, the central bank lowered rates twice
and the reserve ratio three times, pausing since July.

Caterpillar Inc., the world’s biggest construction and
mining equipment maker, expects growth to increase next year as
China’s government focuses on urbanization, Chairman and Chief
Executive Officer Doug Oberhelman said in an interview on Dec. 6.